Tax $700,000 P17.5A (LO 1, 2, 3, 4), AN Service Lewis and Stark is a public accounting firm that offers two pri- mary services, auditing and tax-return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of conten- tion is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead c. Comment on the comparative overhead cost for the two services under both traditional costing approach susing ampute compare data are collected to develop the comparison Estimated Use Estimated of Cost Drivers Use of per Service Estimated Cost Overhead Drivers Audit Cost Drivers Activity Cost Pools $216,000 $1,800,000 $1,100,000 Employee training Direct labor dollars Typing and Number of reports/ 2,500 800 76,200 secretarial forms 1,700 Number of minutes Computing 204,000 60,000 27,000 33.000 Number of employees 142,500 40 22 Facility rental 18 Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000 Instructions a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Lewis and Stark. b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). 2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. 31 and ABC. Tax $700,000 P17.5A (LO 1, 2, 3, 4), AN Service Lewis and Stark is a public accounting firm that offers two pri- mary services, auditing and tax-return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of conten- tion is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead c. Comment on the comparative overhead cost for the two services under both traditional costing approach susing ampute compare data are collected to develop the comparison Estimated Use Estimated of Cost Drivers Use of per Service Estimated Cost Overhead Drivers Audit Cost Drivers Activity Cost Pools $216,000 $1,800,000 $1,100,000 Employee training Direct labor dollars Typing and Number of reports/ 2,500 800 76,200 secretarial forms 1,700 Number of minutes Computing 204,000 60,000 27,000 33.000 Number of employees 142,500 40 22 Facility rental 18 Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000 Instructions a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Lewis and Stark. b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). 2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. 31 and ABC
